In a recent interview, Jeff Gundlach, the founder of the giant bond investment manager Double Line, encouraged us to look at the chart of the Shanghai Composite: “it keeps putting in lower highs but, in the last 18 months, it’s also putting in higher lows. So it’s forming a pennant formation. It will be interesting [...]

We have anticipated the euro’s strength for more than a year against the consensus.
The main forces behind the euro’s strength are still at work:

Current account in the Eurozone is still progressing due to uncooperative and simultaneous policies of competitiveness. The Eurozone current account is nearing 3% of GDP, implying recurrent repatriation of foreign currencies by [...]

We mentioned in April 2014 the strengthening of our indicators on emerging assets. The recovery was first spotted in Asia where Indian and Taiwanese stocks showed impressive positive dynamics at the beginning the year.

As showed in figure 1, emerging bonds in dollar are clearly leading the way up and MSCI emerging equities are following. Emerging [...]

Since the start of the year, interest rates drifted lower including in core sovereign debts (US, UK, Japan, Germany) while global equities rose. As a matter of fact, the US 10 years rates dropped around 50 bps, the German 10 years Bund rate tumbled 60 bps whereas the MSCI World index increased by 3.3% before [...]

We have documented here and here the progressive decoupling of risky assets, as well as the breakup of the traditional negative correlation between equities and safe haven bonds. These two phenomena marked the end of the so-called “risk on/risk off” paradigm which characterized the post-2008 world until Draghi’s “whatever it takes” speech in 2012.

Emerging markets have been engulfed in a vicious spiral since the Fed’s tapering last year (Figures 1 and 2). The rise of US rates has triggered important outflows from deficit countries, resulting in depreciation of their currencies and debt/equity assets.

A first tentative bounce had occurred in the fall of 2013, but, unfortunately, it has been [...]

As analyzed by the Fed watcher, Tim Duy, the FOMC was perceived significantly more hawkish than expected. The unemployment trigger (6.5%) was dropped but the FOMC has also renounced to accept an inflation rate 0.5% above the long term objective of 2%. Tim Duy thinks that the 2% inflation level is no longer a target [...]

Last week, we experienced an interesting turnaround in the ECB communication. For the first time, the ECB expressed its concern regarding the level of the exchange rate, arguing that the euro strength aggravates the problem of insufficient inflation. The speech has had the desired effect on the euro but the impact has been quite short-lived, [...]

The outlook of the dollar has been indecisive since Mario Draghi’s pledge to “do whatever it takes to save the euro” and the subsequent announcement of the QE3 Federal Reserve program. For sure, the emerging currencies have been hardly hit but the euro has served too as a repatriation currency during market stresses.

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